Optimal Contracting with Altruistic Agents: Medicare Payments for Dialysis Drugs

Martin Gaynor, Nirav Mehta and Seth Richards-Shubik ()

American Economic Review, 2023, vol. 113, issue 6, 1530-71

Abstract: We study health-care provider agency and optimal payments, considering an expensive medication for dialysis patients. Using Medicare claims data we estimate a structural model of treatment decisions, in which providers differ in their altruism and marginal costs, and this heterogeneity is unobservable to the government. In a novel application of nonlinear pricing methods, we empirically characterize the optimal contracts in this environment. The optimal contracts eliminate medically excessive dosages and reduce expenditures, resulting in approximately $300 million in annual gains from better contracting. This approach could be applied to a broad class of problems in healthcare payment policy.

JEL-codes: D64 D86 H51 I11 I13 J33 L21 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/aer.20210208

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